The direct reaction between 2,7-bis(2-pyridinyl)-1,8-naphthyridine (bpnp) and Pd(CH3COO)2 in CF3COOH yields the new dinuclear palladium(II) complex [Pd2(bpnp)(μ-OH)(CF3CO2)2](CF3CO2) (1). Similarly, substitution of Pd(CH3CN)4(BF4)2 with bpnp in DMF gives [Pd2(bpnp)(μ-OH)(DMF)2](BF4)3 (2). Treatment of 1 or 2 with Cl– readily provide the chloro-substituted species [Pd(bpnp)(μ-OH)(Cl)2]+. All complexes were characterized by spectroscopic methods, and the structure of 2 was further confirmed by X-ray crystallography. Complex 1 is an efficient catalyst for the reduction of aromatic nitro compounds leading to the corresponding aniline derivatives under atmospheric pressure of hydrogen at 50 °C. The mechanistic pathway of the catalysis is investigated. From the reaction pathway, it is suggested that a facile condensation of nitroso and hydroxylamine intermediates is enabled by the dipalladium system and the desired transformation proceeds smoothly under mild reaction conditions to yield the reduced product.